Wells Fargo: New Tighter Mortgage Guidelines
Submitted by
CalculatedRisk on Thu, 02/28/2008 - 1:25pm (172 comments)
in
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More home price crashing in California on the way; municipality bankruptcies cannot be far behind. Will the state survive, or will we see a default in state debt?
"eliminates financing over 75% LTV for any non-conforming loan"
Does that mean potential buyers need to come to the table with down payments >= 25%?
Because that just ain't going to happen.
[OT] Anybody know why the FRB Commercial Paper Outstanding
page did not get updated yesterday?
I eagerly keep hitting "refresh" on my browser every Wednesday night, but I just looked up and realized it was Thursday.
Call it a California cramdown.
Wow. 25% of the median non-conforming home price in CA has to be over $150,000. That's tremendous amount of cash for anyone, and about 3x the median household income...
Come to think of it wouldn't you love it if Dubai Holding just came in and bought California?
...LTV reductions of 5% for any conforming loan over 75% LTV...
What are you saying--people need to bring 5% to WF right now on their existing mortgage?
Do they list a max LTV?
Interesting "scale." Fromf 1-10 with "1" being the best Wells Fargo seems to think San Luis Obispo is a "9", an even dozen are a "10" and another dozen 10.5s while a few go up to "11." What is this an open ended Richter Scale?
Holy shit, that is a big down payment! Conforming increases won't do crap to help that. Jumbo is f*****.
OK I swear I clicked reload just before I wrote my last comment.
"Never mind"
CP market seems to be stabilizing, if not quite recovering.
They still do 95% in other states so it would be 90%LTV in distressed areas.
What about other states? Has Wells Fargo documented all MSAs that are 'Severely Distressed Market(s)'?
Ohhhh. Florida. Saw this yesterday. Yep, all the counties around me are listed as "severely distressed" It probably has something to do with all the freakin houses that are empty and not through foreclosure yet...Let alone flooding the market.
Chris
Any state ultimately is the will of its voters, and the people are learning to "just walk away." So, I think there will be some tax revolts and defaults, although probably not first in CA or GO debts.
First will be smaller issuers and revenue bonds. Those will test the waters.
In the past, Wall Street has held a hammer over debt issuer's heads that a default would mean credit death. But now, maybe the roles have reversed and the issuers can say to Wall Street: Either let us default and give us more credit or we'll sue your ass for selling crummy mortgages and paper.
Wall Street went tone deaf to Main Street and now may have to pay.
I'm a bit surprised that Marin County is not on the list...
Cobradriver,
Kindly give me a heads up when golf course homes really start to tank. I wanted to buy a few years ago, but couldn't stomach the high prices. East or West Coast is fine, btw.
Angry Saver writes:
Cobradriver,
Kindly give me a heads up when golf course homes really start to tank. I wanted to buy a few years ago, but couldn't stomach the high prices. East or West Coast is fine, btw.
Angry Saver | 02.28.08 - 4:54 pm | #
Count me in. I would love have multiple McMasions on both coast.
something bother me recently. Why most people said muni is the good part of monoline? Maybe I missed something. The key is IS a few days ago or WAS for now, not the GOOD??
US economy risks a 'lost decade' like Japan
US economy risks a 'lost decade' like Japan - Telegraph
Come to think of it wouldn't you love it if Dubai Holding just came in and bought California?
I don't feel comfortable with that idea.
How about we just donate it to Mexico?
cobradriver,
freebirdinblue,
There are 32 golf course houses for sale in my zip code alone $750k-$5m. You need to be more specific.
FFDICe
We're already nine years into a lost decade, imo. After housing crashes, this will become obvious even to the like of Kudlow and Cramer. The press is always late and mis-informed.
Bush, Paulson, and Wells have been busy screwing the pooch today. No change in bankruptcy laws, no aid to borrowers, now tighter mortgage guidelines.
What's good for Citigroup is not good for Mr. and Mrs. Smith.
Suck it in California, your economy is about to implode.
Rob Dawg,
I meant East or West coast of Florida. But maybe I should expand my horizons.
Suck it in California, your economy is about to implode.
A little Calibashing is healthy but lets remember a little perspective. If France were to "implode" then the US, indeed the world economy would be hurt in a big way. California is far more important than France.
RobDawg- "California is far more important than France."
Do YOU need a read on the Conjure Clock?
Angry Saver | 02.28.08 - 4:54 pm |
freebirdinblue | 02.28.08 - 4:57 pm |
No problem. The crashing really hasn't dropped the higher priced stuff as fast.
The lower end (250k) has already gotten/getting whacked pretty good.
The stuff moving right now are properties needing work. A canal house that wasn't finished(4br/3bt/3car) just sold for 105k. It was finished thru drywall. I could have done all the finish work/materials for 30k/40k myself,60k if hired out...Sold in 4 days as a cash deal. This was a builder who abandoned the property...
I would say next spring. Why? Oct-Feb are usually crowded with snowbirds buying. I have watched 100k and lower go from nothing 18 months ago to 540 properties out of 3400. Wooot !!! And it isn't getting better.
Chris
"Bush, Paulson, and Wells have been busy screwing the pooch today. No change in bankruptcy laws, no aid to borrowers, now tighter mortgage guidelines."
reminds me of when they said they were against raising Fannie and Freddie's cap. They'll change their tune, probably to make the implied backstop of the GSE's IMPLICIT...
There may be some lenders who DON'T follow Wells. I would suppose they are about to be extremely busy.
Outsider- "There may be some lenders who DON'T follow Wells."
Everyone should damned well hope they don't, but they probably will.
Angry Saver writes:
I meant East or West coast of Florida. But maybe I should expand my horizons.
My plan is to buy 320 acres in rural New England for a private airstrip and 4 season retreat. Golf cabins and hangar space reservations being accepted now.
Living on a golf course isn't all it is cracked up to be. Trust me, better to "visit" than to reside.
Of "course" [groan] if you are set on Florida I expect you can buy any number of trailer parks for back taxes and turn them into private links in a few years.
On the link between jingle mail and municpal finance: suppose lots of Californians send the keys back to the bank. Property taxes start to accrue while the bank tries to unload its new property. Does the munipality/state have a higher priority lien than the bank when the property is next sold?
I don't think Bush and Paulson will change their tune. I think they are shifting into election mode.
They are saying that the Republicans hear the voice of the people clamoring for no bail outs. The Republicans aren't going to just be lapdogs for Wall Street, at least not until after the election is over. The Republicans are going to be tough and free enterprise.
They are posturing against the Democrats, whom they want to pigeon-hole as socialists bailout queens. It's always been mainly about politics, not reality, for Bush. He is teaching Paulson what he knows.
Conjure Bag says, "Game over."
Did anybody get a peek at the full Wells-Fargo memo before it was taken down? Want to share the PDF?
OR, I'm wondering what counties in VA are listed as soft.
Rob Dawg,
Any idea how much more difficult it is to actually qualify for a mortgage in CA today vs two years ago.
When I purchased in the early 1990's (NYC area) underwriting was a lenghty process requiring a pile of paperwork and documentation. A real pain. 20% down was the norm.
FT Alphaville
{Peloton Partners, which last year had one of LondonÂ’s best performing hedge funds thanks to a bet against US subprime, is liquidating its $2bn ABS fund as a result of the continued deterioration in asset values.
No details yet of how much it lost, with the letter saying only “severe declines” in value, but with banks hawking the book to rival funds there can’t be much left for hapless investors.
The fund, run by former Goldman Sachs partners Ron Beller and Geoff Grant, was known to be highly volatile, and posted an 87 per cent return last year on the back of a tough 2006. PelotonÂ’s $1.6bn multi-strategy fund was also up 27 per cent, thanks in part to its large investment in the ABS fund.
But 2008 has not been so kind. And prime brokers have tightened the vice. As a result, Peloton has also suspended NAV calculations and redemptions from the multi-strategy fund - the future of which also sounds in doubt. Judging by the tone taken below, thereÂ’s more than a little bad feeling harboured against their bankers.
Of course, thereÂ’s an award-related embarrassment here. Peloton ABS won the credit award, as well as the new fund of the year award for non-equity strategies, at last monthÂ’s EuroHedge gongs.
Every hedge fund collapse makes headlines but BellerÂ’s past life as a wealthy victim of theft is likely to put Peloton at the top of the tabloids - remember Joyti De-Laurey nicking millions from a bunch of rich Goldman bankers who didnÂ’t notice for years? Beller was one of them.}
If California needs to have massive budget cuts, it will be interesting to see how this intersects with the immigration debate. I'm sure no school, public services, and hospital care for illegal immigrants will become a rallying cry.
Do YOU need a read on the Conjure Clock?
Aha words cant describe the feeling and the way you lied
These games you play, theyre gonna end it more than tears someday
Aha enola gay, it shouldnt ever have to end this way
Its 8:15, and thats the time that its always been
We got your message on the radio, conditions normal and youre coming home
Enola gay, is mother proud of little boy today
Aha this kiss you give, its never ever gonna fade away
Enola gay, it shouldnt ever have to end this way
Aha enola gay, it shouldnt fade in our dreams away
I know I'm ground zero and I can hear the B-29 engines in the distance. I know what time it is.
Rob Dawg writes:
My plan is to buy 320 acres in rural New England for a private airstrip and 4 season retreat. Golf cabins and hangar space reservations being accepted now.
Rob Dawg, there's a town near here that inherited a big state school grounds and they have been trying to get someone to develop it. I think a couple deals have already fallen through. It's Belchertown, Mass. The name might be part of the problem--dosen't have the resort sound, though I guess its better than Flatulent Park.
Rob Dawg,
If you come East, try the Turningstone resort & casino in upstate NY (near Syracuse). Great golf.
Isn't Wells Fargo just conforming here to the Fannie Guidelines annouced a couple of weeks ago?
I dont understand how Wells Fargo can say LA County is Severely Distressed and Ventura County is merely distressed.
Bob_in_MA,
"School grounds." That's a nice euphemism. Here in Camarillo we turned our "school grounds" into a state university.
For real adventure ride your bicycle on the old route between Orange and Pelham. Pass cars.
Oh,hell,I forgot I was going to say I noticed Wells Fargo shows 1600 fc's in Fl vs. 1300 for Countrywide. But I guess that isn't a record you really want to hold.
Chris
Rob Dawg
great OMD quote...rock on
and yeah youre right...
ground zero and zero hour too
mt
Anyone manage to save a copy of the PDF?
James -
It was posted here a few days ago. You might look in some of the comment sections and find it.
James,
Link to the PDF, I'm sure it'll be gone soon so get it whilst you can:
http://blownmortgage.com/wp-content/uploads/2008/02/w08-024.pdf
Dumb question here: What does "...LTV reductions of 5% for any conforming loan over 75% LTV..." mean ?
Thanks much!
Cal, thanks for the link.
Actually, here in Ventura County we sold the 700 acres ouside of the "school grounds" for a little over $1,000 an acre in the early 80s and are now buying it back piece at a time for the university at about $100,000 an acre from the smart farmer who bought it.
Cal writes:
I dont understand how Wells Fargo can say LA County is Severely Distressed and Ventura County is merely distressed.
A common first reaction including my own. Upon reflection I agree with Wells Fargo. Extreme growth restrictions over the past decade in VenCo have constrained supply and retained quality of life while reducing the velocity of housing stock turnover. Still trouble but nothing like Merced trouble which has committed all those sins.
Dell missed...
w writes:
Actually, here in Ventura County we sold the 700 acres ouside of the "school grounds" for a little over $1,000 an acre in the early 80s and are now buying it back piece at a time for the university at about $100,000 an acre from the smart farmer who bought it.
Clarification. We are trading back those acres with acres bought off Central between Beardsley and Santa Clara. It was the Central Ave acres that were the dirty deal. Back when the hospital was closed the cheap land was cheap because it was "ag only" designated. Nearly all of the price appreciation results from the University being exempt from local land use regulation.
Rob,
Oxnard alone is enough to commit the whole county to purgatory. But all I see if weakness from end to end. If a city "only" has 20% of the inventory Vacant, NOD filed, Short sale or lender approved flags set on the MLS it is doing great.
4960 homes/condo listed on the Ventura MLS, 2245 are either Vacant, NOD Filed, Short Sales or Lender approved. I'd call that severely distressed. I just dont see a difference between here and LA County.
To Conjure and I, it seems a fait accompli. Nominal house prices in California: down 30%.
\tConjure Bag says, "Game over."
PLEASE ELABORATE!
Re: Will the state survive
It will be reborn after a civl war
tj & the bear writes:
Conjure Bag says, "Game over."
PLEASE ELABORATE!
You're asking an anonomous blogger's imaginary friend to elaborate?
Nominal house prices in Cal. are heading down 30% anyway. And they need to.
Expecting 20-25% down payment, like someone noted, was the common requirement a few years back. Although painful to adjust, it may be for the best in the long run.
The world has not ended yet.
I'm surprised at the level of "surprise" this has elicited on this board. In a period of falling RE prices, isn't having 75% LTV just a sound, conservative lending practice? It does, however, throw a bright spotlight on how far out of kilter the lending practices were.
tj- "PLEASE ELABORATE!"
If the bankruptcy law is not modified to allow cram downs, if there will be a Bush veto on aid to bagholders, if Wells and the other lenders persist in this form of tightening, then:
1) California foreclosures go through the roof;
2) House prices fall maybe 30% NOMINAL;
3) California households cut DRASTICALLY on consumption;
4) California tax revenue falls;
5) More California municipalities that played with ARS and interest rate swaps declare bankruptcy.
6) Other "distressed" regions will suffer the same fate, ensuring that this recession will be LONG and PAINFUL;
7) Net household wealth in the U.S. will evaporate as house prices fall;
8) Restrictive lending practices by Wells and others ensures the development of Keynesian liquidity trap;
That's just off the top of my head.
Rob, you are right that they are trading the ground. But I'd rather get paid in land than dollars. The ground the farmer is getting is much better. And I believe the trade is being done at a premium. I just think it is funny that the state gave away the land for nothing and then built a university and had to get it back at 100x what they got for it.
A friend in Oxnard bought new for 580k two years ago and is now looking at the same house listing for 380k. That is for a HUGE brand new house. It is going to be very painful for us all in one way or the other.
If the bankruptcy law is not modified to allow cram downs, if there will be a Bush veto on aid to bagholders, if Wells and the other lenders persist in this form of tightening
So mp, you are for intervention then? As opposed to letting things fall out?
"My plan is to buy 320 acres in rural New England for a private airstrip and 4 season retreat. Golf cabins and hangar space reservations being accepted now."
Rob Dawg - I'll trade expertise with row crops for hanger space and 100LL
jus me, my "imaginary" friend correctly called the recession now beginning, and also made the call that the Bear Stearns debacle would precipitate a global financial meltdown. He also made the call in November that the bull market in equities was over.
It's all in the notes. I like my "imaginary" friend.
mp -
You're saying he's real?
In answer to Baldrick's question. Yes, tax liens have priority to any mortgage lien. And they have a penalty interest rate of, I believe, 10%. The whole mess can accrue for 5 years before the county forecloses and forces sale.
jus me, what do you want me to say?
Do you want me to say that Conjure DIDN'T say those things?
Ventura Co is only "distressed" because Thousand Oaks and Westlake Village prices are holding up. Oxnard/Ventura is causing the "distress"...more Subprime, Alt-A, foreclosures, and new construction in those areas, virtually none at all in TO/WV
100LL? Jeez that stuff is doing better than silver these days. I'll trade you your heirloom tomato plasm for extended range wingtip composite bolt up design services and construction.
Did I say "golf cabins?" I meant "golf bunkers."
Interesting yield curve toy at Fidelity: Historical Yield Curve
We were flat last year and seem to be in a curve like 2002/2003 which is steep, and thus reflects The fed crashing rates again. As some may recal, The Fed rate cuts were connected to lower mortgage rates and a PR campaign by NAR and an army of realtors to buy homes, which were often sold with no-doc subprime loans. How ironic that The Fed has pulled out the same playbook, while the banks are apparently re-writing lending policy to prevent the future losses, which they are now paying for in regard to the previous game. Does anyone see the next housing bubble as a way out of this?
So just what might be the party affiliation and political value structure of the politicos pushing for "bailouts"? Are we to suppose they are acting on "principle"?
fremont general, not good-
"-COMPANY ANNOUNCES INTENTION TO DEFER INTEREST PAYMENTS ON ITS JUNIOR SUBORDINATED DEBENTURES AND RELATED 9% TRUST ORIGINATED PREFERRED SECURITIES ISSUED BY ITS TRUST SUBSIDIARY "
Expired
AIG reports $5.29 bln quarterly net loss on derivatives hit - MarketWatch
AIG SWINGS TO A LOSS, TAKING $11 BILLION DERIVATIVES-RELATED CHARGE
Outsider- "So mp, you are for intervention then? As opposed to letting things fall out?"
Frankly, I don't give a damn what they do because I'm covered. My only concern is how I'm going to make money off of this.
mp -
I like the Conjure Bag rhetorical artifice. My compliments to you, both for the calls, and for style of having a 3rd person (CB) making the pronouncements. It's very witty.
But it cracks me up when other posters take CB seriously, and demand to know CB's position on this or that. I dunno. I must be too much of a blockhead to join in the fun.
Oh well, tell Conjure Bag I'm sending him a case a macanudos and some very fine port.
more on fremont-
"Although this deferral will preserve cash at the Company, it is merely an initial step in a process, and will not be sufficient to solve the Company's cash flow problems or the significant capital needs of the Company and the Bank."
jus me, did you ever see Peter Pan on the stage?
Already have super tips, thanks. They seem to just lower best glide and maneuvering speeds. Only way to stretch gas seems to be lower MP. Are yours better?
mp, uhm, actually once, yes.
Well, if you took it in, you'd believe. At the end of the day, that's what ALL of this is about. So, as Peter Pan asked, "Do you believe?"
I did.
Ahhh.
Actually, I remember keeping my eyes open, and looking around as the rest of the audience closed theirs, and thought, "WTF? No one's really going to close their eyes and believe, no way." But of course, everyone else did.
Oh well.
Coincidentally, a lot of people in areas now termed "distressed" once bought 'homes' because THEY believed, and they'll keep believing until something makes them stop.
Well, that something is now upon us.
I'd rather listen to Conjure Bag speak on the economy than, oh, George Bush. I've never thought George Bush was real, but I've had to listen to him nonetheless. What's worse, think about the people who voted for him.
So, to Jus Me, I say, get real.
And to Conjure Bag I say, humbly and gratefully, thank you.
Joe
Actually, that rate curve link, look at the latest curve, i.e, we have never had one like this, as both long and short term rates are crashing; at least in 2002 or so, you had yields of maybe %5, but now the long rate is 4.5% with a 10 year at 3.6%.
Re Fidelity: Typically the yield on 30-year Treasury bonds is three percentage points above the yield on three-month Treasury bills. When it gets wider than that -- and the slope of the yield curve increases sharply -- long-term bond holders are sending a message that they think the economy will improve quickly in the future.
Equity investors who saw the steep curve in April 1992 and bet on expansion were richly rewarded. The broad Russell 3000 index (right) gained 20% over the next two years.
From BEA: During 2007 (that is, measured from the fourth quarter of 2006 to the fourth quarter of 2007), real GDP increased 2.5 percent. Real GDP increased 2.6 percent during 2006. The price index for gross domestic purchases increased 3.3 percent during 2007, compared with an increase of 2.4 percent during 2006.
The deceleration in real GDP primarily reflected a larger decrease in residential fixed investment,
a downturn in private inventory investment, and a deceleration in equipment and software that were partly offset by a deceleration in imports.
On the other hand, I never believed it when the dot-coms were going to make us all rich, nor when housing prices were going to the moon.
The wire on Peter Pan I could see, the wire that elevated the housing process I could not see. But I knew it was there.
Until I came to this site, and found out it was the securitization process (+ ratings screw-ups) that enabled housing prices to defy gravity - temporarily.
jus me- "The wire on Peter Pan I could see, the wire that elevated the housing process I could not see. But I knew it was there."
Welcome to Conjure's World.
"Ventura Co is only "distressed" because Thousand Oaks and Westlake Village prices are holding up. Oxnard/Ventura is causing the "distress"...more Subprime, Alt-A, foreclosures, and new construction in those areas, virtually none at all in TO/WV"
TO itself (or as the wife and I call it, TOol town.) isnt doing that great, 42% of inventory on the Ventura MLS is vacant, nod filed, short sale or lender approved flags set.
Rich people can afford to stay in denial longer, but they either choose not to sell, accept market price (which is dropping fast), or get deal with the bank in some manner to get it sold.
I still just dont see how Ventura isnt Severly Distressed.
Based on past performance, I believe in both jus me AND Conjure Bag. But I suspect Conjure Bag's diet is more interesting.
MLM - Conjure Bag's diet is more interesting, and so is CB's past performance.
jus me has not made much money investing, so go with CB.
Ventura County and the other not-as-distressed counties are more rural than the others.
The distressed communities list would be very different if they could still redline.
"Distressed" vs. "Severely Distressed" .... does it really matter that much? Do we really think there are that many potential buyers that have $120K for a down payment not $150K? Yeah, it's really the last $30K that's going to keep them from buying.
mp -
What I DON'T see is how a 30%-50% decline in housing prices causes Total Financial Meltdown. Sure a couple banks may go under, but won't they be replaced by new ones?
Malinvestment Theory
Austrian School economist Dr. Paul Cwik claims that the yield curve's shape depends mostly upon actions by a monetary authority that promote an atmosphere of malinvestment resulting from periods of loose monetary policy. He claims that the process of liquidating those malassets inverts the curve.
jus me -
Seeing the wires is valuable for many reasons, not just for making investments.
For one thing, it can keep you supplied in Macanudos, even when you look like a furry purse with feet.
Jus me,
apparently Bush, Bernanke, Congress, Wallstreet, Asia, Europe, all disagree with you. They are prepared to do whatever it takes to prop up housing prices.
I'd like to hereby congratulate FFIDC on something said a couple of weeks ago. FMT is halted and it looks like they're about to get taken over.
Good work FFDIC!!!
jus me- "What I DON'T see is how a 30%-50% decline in housing prices causes Total Financial Meltdown."
The principal source of household wealth is the equity in real estate. If the equity in household real estate disappears, which it would with a 30% to 40% nominal fall, that would result in a MAJOR consumption pullback.
You see where this goes, right? It's like a row of dominoes.
Oops, forgot to post the link to FFDIC's statement that a $9B bank about to fold:
Calculated Risk: Project Lifeline
100% right on!
It goes back to 2002, when prices were 30%-50% lower.
mp -
Not to mention the domino of that much "money" evaporating. Gonna be tough to make a lot of loans in that environment.
FFDIC - Here's echoing Darth Toll's kudos.
More on FMT:
Fremont to Explore Sale | Top Business News | Financial Articles & Investing News | TheStreet.com
Stick a fork in it, she's done.
mp,
From A Comedy of Errors by Shakespeare:
DROMIO OF EPHESUS: Return'd so soon! rather approach'd too late:
\tThe capon burns, the pig falls from the spit,
\tThe clock hath strucken twelve upon the bell;
CFC should be next.
I am short 700 shares that I hope to never have to cover.
Lol- guy in the elevator believes in the buyout- bought just before it was announce and was up 5k- I says- hey free money you should take it!
Nah he wants the other 5k and is willing to wait for it. Looks like a bad move after Treas Sec voted no today.
Prices of housing back to 2002? fine! How about everything else, the?
Um, no dice? Thought so.
Someday this war's gonna end...
MP -
What about after the crash and after the dust settles, when people aren't spending a ridiculous percentage of their income on housing?
Or is the impact of the lost wealth too devastating? Does it depend on whose wealth is lost -- 1) the CA homeowner that bought pre- or early bubble and wasn't tempted by MEW --- i.e. no forclosure, just less wealth, or 2) the bank or MBS investor through forclosure?
Re: after the dust settles
The second variety of these disproportionality doctrines is known as the acceleration principle. A temporary rise in the demand for a certain commodity results in increased production of the commodity concerned. If demand later drops again, the investments made for this expansion of production appear as malinvestments. This becomes especially pernicious in the field of durable producersÂ’ goods. If the demand for the consumersÂ’ good a increases by 10 per cent, business increases the equipment p required for its production by 10 per cent. The resulting rise in the demand for p is the more momentous in proportion to the previous demand for p, the longer the duration of serviceableness of a piece of p is and the smaller consequently the previous demand for the replacement of worn-out pieces of p was. If the life of a piece of p is 10 years, the annual demand for p for replacement was 10 per cent of the stock of p previously employed by the industry. The rise of 10 per cent in the demand for a doubles therefore the demand for p and results in a 100 per cent expansion in the equipment r needed for the production of p. If then the demand for a stops increasing, 50 per cent of the production capacity of r remains idle. If the annual increase in the demand for a drops from 10 per cent to 5 per cent, 25 per cent of the production capacity of r cannot be used.
The fundamental error of this doctrine is that it considers entrepreneurial activities as a blindly automatic response to the momentary state of demand. Whenever demand increases and renders a branch of business more profitable, production facilities are supposed instantly to expand in proportion. This view is untenable. Entrepreneurs often err. They pay heavily for their errors. But whoever acted in the way the acceleration principle describes would not be an entrepreneur, but a soulless automaton. Yet the real entrepreneur is a speculator,19 a man eager to utilize his opinion about the future structure of the market for business operations promising profits. This specific anticipative understanding of the conditions of the uncertain future defies any rules and systematization. It can be neither taught nor learned. If it were different, everybody could embark upon entrepreneurship with the same prospect of success. What distinguishes the successful entrepreneur and promoter from other people is precisely the fact that he does not let himself be guided by what was and is, but arranges his affairs on the ground of his opinion about the future.
Another implosion-
"Feb. 28 (Bloomberg) -- Peloton Partners LLP, the London- based hedge-fund firm run by former Goldman Sachs Group Inc. partners, is liquidating its ABS Fund after ``severe'' losses on mortgage-backed debt and demands from banks to repay loans.
Peloton, founded by Ron Beller and Geoff Grant in 2005, is seeking buyers for the $1.8 billion fund's assets, according to a letter sent today to investors. Firms including Citadel Investment Group LLC and GLG Partners Inc. have looked at the portfolio, two people familiar with the situation said. "
Peloton to Liquidate ABS Fund After Mortgage Losses (Update5) - Bloomberg.com
jus me -- "the securitization process (+ ratings screw-ups)" was selling tickets to the show.
The wires that lifted it up were cheap money, zero percent down, fee-yielding comparable appraisals, and no verification of income nor collateral....it took off, and flew as high as the rigging would permit.
query_tool, when a minimum of $1 trillion in wealth evaporates, it won't matter where you're standing. You're going to feel it. The ones who will feel it the least are the ones with cash and cash equivalents.
As I've said here countless times, we're not looking at a problem of inflation, it's deflation. Unless, of course, OPEC does something stupid like cut production in the face of a falling dollar. Well, sure, then you've inflation.
mp,
Thanks! BTW, I've been operating under the assumption that all those things are going to happen anyway.
Yen broke through 105, at a long-time low.
mp- OPEC- check that one off, they have already done that.
Nothing like having a major producing country stop producing since 2003.
I am beginning to think that our major trading partners are preparing to go it without us contributing very much to the world economy over the next five years.
Just me being paranoid. But hey, it could happen.
Someday this war's gonna end...
Question:
As banks implode, don't other new banks take their place?
If a major or two goes under, can't a minor or two step up to take their place?
mp --
Believe me, I know. I'm a CA homeowner, and I pulled all the money I had in equities in non-taxable accounts out of the stock market last October for my "housing implosion / future downpayment fund".
jus me- "If a major or two goes under, can't a minor or two step up to take their place?"
Well, sure, but there just won't be as much wealth with which to play.
there just won't be as much wealth with which to play
Won't they just print replacements?
sheesh.... I meant I sold all my stocks in taxable accounts.
"Won't they just print replacements?"
We'll just have to wait and see, won't we?
mp - Ah, I see you mean the minor bank won't have the wealth to play with, I sort of mis-responded by saying the total amount of paper wealth could be increased.
Sure, the minor banks will have less wealth to play with, but wouldn't they grow (rapidly, with the Fed's wind behind their backs)?
risk capital - This was a moderate hedge - they only did 4-5X margin. FT had a good article yesterday on this.
jus me, IMO, you needn't worry about the banking system. It will survive just fine. The people to worry about are Mr. and Mrs. Smith.
"Yen broke through 105, at a long-time low."
You mean long-time high against USD, of course.
mp -
you needn't worry about the banking system. It will survive just fine
Then what's with the meltdown clock?
mp - you needn't worry about the banking system. It will survive just fine
Then what's with "GAME OVER" ?
barely-
I missed this one, caught another, but, this is the first I saw of this potential liquidation.
Seems like trouble for some folks!
INELIGIBLE: Non-Conforming VOA is not allowed in Distressed or Severely Distressed Markets.
The new message will appear on loans registered on or after Feb. 23, 2008, and on loans registered on or after Dec. 15,
2007, if redecisioned or now being submitted for decisioning.
Note: Transactions with LTVs/CLTVs >75% will continue to also receive the general At Risk Markets messages above..........New Message for Wells Fargo Mortgage ExpressSM in Severely Distressed Markets
In conjunction with credit policy changes announced via Newsflash on Feb. 4, 2008, the following message will be fired
on Wells Fargo Mortgage Express loans in Severely Distressed markets:
INELIGIBLE: Wells Fargo Mortgage Express Program with subject property located in a Severely Distressed
Market is not allowed.
The new message will appear on loans registered on or after Feb. 23, 2008.
Note: Transactions with LTVs/CLTVs >75% will continue to also receive the general At Risk Markets messages above
Re the <a href="http://biz.yahoo.com/prnews/080228/lath118.html?.v=74>Fremont default announcement on Yahoo:
How often are press releases in ALL CAPS BOLD?
Ouch! Where are my sunglasses?
Fremont General Corporation is a financial services holding company with $8.8 billion in total assets, at September 30, 2007
I think we have our 9 billion Bank.
Since the LFKAJ rules aren't out yet, if the other lenders follow Wells nobody's going to buy a house for more than 450K-500K in CA for several months. The key is: will the others follow, and how quickly? The Enola Gay is in the air but the bomb isn't dropped until other lenders start copycatting.
Kabooooom!
Original Implode - 2008-02-28: It's official. Merrill Lynch announced today that it would be shutting down First Franklin, Reuters reported today. An email tip we received just moments before the release said they would be "keeping open only a small servicing shop." "The move could result in the elimination of 400 to 500 jobs." No details were given as to a timeline for the winding down of operations.
NationPoint out of Lake Forest CA is a division of First Franklin Financial Corporation, an operating subsidiary of Merrill Lynch. We put in a phonecall to their offices, and were promised a call back from the HR Manager (who happened to be on a conference call at that moment (12:40pm (PST)). Calls to any of the 52 Loan Officers listed on their web site all returned the same corporate phrase, "I can't comment on that." The fate of NationPoint will be known shortly, I'm sure.
-
I'll always remember when the First Franklin rep walked in my office in dec 2006 talking about how FF would never go under because they had the backing of Mother Merrill.
I actually used them for on one of the only subprime deals of my 7.5 year career. It was a 2/48 ARM. The credit score was 557 (effing low), stated income, stated assets, loan amount $790K with $100k cash out and 70% LTV with a rate of 7.25%....the payment was only $6600 w/ taxes and insurance.
Why they lent this nice man this amount of money I have no idea. But he is trying to refinance again and it's no dice....
risk capital - drive me nuts but I seem to recall there was 9B at this hedgie..I saw an article but a few weeks ago
jus me -
Take a minute to read some "Time Magazines" from the 1930's. They're all on line at TIME Magazine Archives - TIME Archives - TIME Magazine Back Issues
An implosion in the financial system isn't an overnight thing. But we're on the way.
We are now reaching the point I have been waiting for, credit tightening.
This is when the crash BEGINS.
AIG reports $5.29 billion quarterly net loss
Insurance giant takes $11.12 billion charge from credit derivatives
barely-
still waiting for the commodities show, hedgies should provide a grand showing in this space once reality sets in.
MLM - Thanks for the link.
Implosion not an overnight thing, but we're on our way.
You know, my gut tells me an implosion is near. But my gut has been saying that for 30 years.
I'm trying to figure out if this time it's for real.
mp - Apologies for being contentious, I'm just trying to figure out
1. How bad "collapse" or "meltdown" is. Of course, for different people the same term resonates differently.
jus me- "Then what's with "GAME OVER" ?"
It means that, sometime soon, a new day will dawn in America. People will have to save if they want to buy a car, or a house.
The "good times" of buy now and pay later will be over. And, that's why cash and cash equivalents will be king. Prices will fall due to lower overall demand.
Prices in Fresno have been in free-fall since November or so. What was $90K in 2002 was $300K at the peak (2005), $260K last year, and listed at $150K now (and not selling).
Truly fascinating process.
From Agora's Rude Awakening newsletter:
On February 7th, the U.S. Treasury sold $9 billion of 30-year bonds at a yield of 4.45%, the lowest yield ever. Overall investor demand was tepid. Foreign investor demand was virtually non-existent. "Indirect bidders, a group that includes foreign central banks, bought 10.7 percent of the amount sold," Bloomberg News reports, "compared with 31.6 percent in the prior auction."
Perhaps that's why the Federal Reserve bought half the auction! In other words, Peter borrowed from Paul to pay Paul.
The anonymous 7:34 was me, sorry.
All Fall Down writes:
Already have super tips, thanks. They seem to just lower best glide and maneuvering speeds. Only way to stretch gas seems to be lower MP. Are yours better?
jus me- "But my gut has been saying that for 30 years."
And you've been right, but not correct, technically speaking.
AIG loses $11Bn on CDS's
Is this the first confession of CDS losses? Regardless, it's a doozy.
Would those be the same CDS's that AIG didn't mark because they didn't agree with how the market place was valuing them?? I seem to remember them saying something to that effect - I'll have to go look for what they said in the earnings annoucement a few days ago...
Yesterday, at least for a few hours, Fannie investors appeared to be all smiles on news that the Office of Federal Housing Enterprise Oversight will remove the growth caps on the portfolios at both Fannie and its government-sponsored cousin Freddie Mac.
The agency had imposed the restriction in response to the accounting scandals at Fannie and Freddie a few years ago. Both companies' stocks initially soared on the news. Fannie at one point touched $31.58, up 17 percent from Tuesday's close.
It was as if the market seemed to think that Fannie might keep losing gobs of money, but make it all up on volume. Investors quickly came to their senses.
At Fannie Mae, Mind the Fair Value, not the GAAP: Jonathan Weil - Bloomberg.com
AIG news
AIG Posts Biggest Loss, Misses Analysts' Estimates (Update3) - Bloomberg.com
All of this bad news after hours, FMT, Dell, AIG, we should expect a 500 point rally in the DOW tommorow
"All of this bad news after hours, FMT, Dell, AIG, we should expect a 500 point rally in the DOW tommorow"
milking the dead cow before the milk spoils
Mike-
I like that approach, similar to when a hedge fund suspends reporting NAV cause they don't agree with the marks, it's for your own good you know.
Mike-
I like that approach, similar to when a hedge fund suspends reporting NAV cause they don't agree with the marks, it's for your own good you know.
jus me-
In a consumption-oriented society there is very little room for going backwards. And this does not take into consideration the current negative ramifictions of our
Debt.
Leverage.
Overconsumption.
Job Losses from Globaliztion.
By the way, Mr. and Mrs. Smith are the soon to be unemployed that will do anything to survive and eat. And this is not like the 1930's. A large portion of our society now have or have access to weapons. And when push comes to shove they will not be waiting for a handout.
It will be all about takeout.
"By the way, Mr. and Mrs. Smith are the soon to be unemployed that will do anything to survive and eat. And this is not like the 1930's. "
I expect the most prepared and organized segment of our society for such a situation will be the Mormons.
"rich writes:
Yen broke through 105, at a long-time low."
I remember yen at 98 or so back in the '80s. As far as I'm concerned we're not in unknown territory until we get past that point.
At 90, though, I'm sweatin' bullets. Prepared, sure, but still sweating.
Can anyone refresh our memories with a timeline of what Fremont went though? I thought the restructuring deals it did would take them away from the problems. What residual exposure did they have that took them down?
I'd like to hereby congratulate FFIDC on something said a couple of weeks ago. FMT is halted and it looks like they're about to get taken over.
Good work FFDIC!!!
Darth Toll
Ummm, FFDIC gets the credit for telling us that his sources tell him that a $7B bank is in trouble. I did the look-ups at the FDIC site and named FMT as my hot favorite (out of 6 or so). So I claim the props. Props is all it is though - I shorted FMT last year around this time of year at 13.xx , followed it down, in and out following the vicissitudes of some HedgeFund playing at buying it until I cashed out at $4 mid Aug and never looked back. So I got my money's worth out of it.
But you can see why the props are important right now
-K
Speaking of bankruptcy in California cities:
"City officials and leaders of Vallejo's police and firefighter unions have reached a tentative deal that would postpone the need for the city to file for bankruptcy, city officials said this afternoon."
The unions blinked. I was 75 percent sure they would; it was either take the city's deal, or one from the bankruptcy judge. And the judge doesn't negotiate.
Vallejo's by no means out of the woods, but don't write them off yet.
For all I have to say about Vallejo's corrupt political culture, their new mayor, Osby Davis, is a man I met several times back in the day, and admired.
Vallejo, unions set cost-cutting deal
So, if they cut FFR to 1 or 2% the carry trade dies right? At least the part invested in the US?
I remember yen at 98 or so back in the '80s. As far as I'm concerned we're not in unknown territory until we get past that point.
Bob Dobbs | Homepage | 02.28.08 - 8:10 pm | #
Bob,
Oh yea,the memories of Iwakuni in 87-88. A lowly E-3 in the Corps. Talk about poor. Most of the time we couldn't even afford cheapo sightseeing trips. Let alone any sort of nightlife.
At least the P.I. made up for it...
Chris
subic city
subic city
Nova | 02.28.08 - 8:31 pm |
Not to often on a Economic cite I would give somebody a OOORAHHH...I will keep the stories to myself. Yes I was 20 w/o a care in the world. And the officers were as bad(or worse) than we were!!
Chris
K
complementing FFDIC isn't taking anything away from you or others.
but we wouldn't be looking for the 9B ( not 7 if memory serves?) institution and comparing notes, if FFDIC didn't first sound the warning bell.
we have several leaders here at CR comments and i for one say thanks to FFDIC for his frequent insightful posts.
maybe we should make a list and thank several long time contributors of note.
jus me- "What I DON'T see is how a 30%-50% decline in housing prices causes Total Financial Meltdown."
The principal source of household wealth is the equity in real estate. If the equity in household real estate disappears, which it would with a 30% to 40% nominal fall, that would result in a MAJOR consumption pullback.
You see where this goes, right? It's like a row of dominoes.
mp | 02.28.08 - 6:37 pm | #
Thats only half of it, part of the $5 Trillion lost is borne by the lenders, most spicifically the banking system. this quickly wipes out bank capital. Each $ of capital supports $10 worth of lending. Good old fractional reserve banking working in reverse with a vengence. No lending, no economic growth. If just for back of the envolope purposes, the banking system looses $1 Tillion, and that is not replaced (i.e retained earnings from other activities, SWF's pitching in, then Fed massively increasing the TAF and making the term 10 years, etc) then total loans and leases should fall by $10 Trillion. Small problem though, total loans and leases are less than $7 billion. In other words the banks have to call every single $ of loans out. Thats how this causes the mother of all finacial meltdowns.
It's pretty shocking to see the number of counties (in WA. state anyway) that are NOT on that list.
Frankly, it looks like WF is sticking it's head in the sand and cruisin' for a bruisin'.
Hopefully, they are tightening everywhere and just sending out an incomplete list, to soothe the nerves of those people who are upset (even now..lol!) over the idea of responsible lending.
apparently Bush, Bernanke, Congress, Wallstreet, Asia, Europe, all disagree with you. They are prepared to do whatever it takes to prop up housing prices.
And how's that been working out so far?
Mission Accomplished.
Bob - thanks for the the legit reporting on Vallejo. Excellent informed perspective - but then again that's what I've come to expect here.
Thank god no more 97% LTV loans are available. Oh wait. GSEs.
We're still doomed.
Maybe this has been mentioned but aren't all GSE or FHA loans now "conforming"?
Rob Dawg, I think this is along the lines of you golf 'retreat'
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